JPMorgan: Only “Black Swan” Can End Airline Rally

By Ben Levisohn

JPMorgan upgraded shares of JetBlue Airways (JBLU), Alaska Air (ALK), United Continental (UAL) today because they can’t see any reason for airlines stocks to go down. Really.

Peter J. Smith for The Wall Street Journal

JPMorgan analysts Jamie Baker and Mark Streeter write:

The US airline industry is entering its fifth consecutive year of forecasted profitability, the second longest post-deregulation stretch on record. Truthfully, we’re running low on ideas as to what could derail current prosperity in the near term, save for exogenous, black swan events. Our song, therefore, remains very much the same: the bias is the opportunity. Airlines still trade at healthy discounts to the market given their far-from-illustrious track record, but remain poised for re-rating, in our view. Following a generally upbeat earnings season, our estimates are broadly lifted, as are accompanying price targets. We are upgrading our stock ratings on [Jet Blue and United Continental] from UW to N, as well as [Alaska Air] from N to OW, with revised equity price targets of $9.50, $53.50 and $97, respectively.

Baker and Streeter also raised their price target on Delta Air Lines (DAL) to $40 from $35.50 and on Southwest Airlines (LUV) to $19.50 from $14.50.

Shares of United Continental have dropped 0.7% to $46.12, while Alaska Air has gained 2.3% to $79.66, JetBlue has fallen 1.4% to $8.87, Delta Air Lines off 0.2% at $30.52 and Southwest Airlines has declined 0.7% to $21.07

About Stocks To Watch

Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.